The gist is very simple, in Fred’s own words: “This story is designed to illustrate the fact that software alone is a commodity. There is nothing stopping anyone from copying the feature set, making it better, cheaper, and faster. And they will do that.”

In particular, Fred is making a case for software companies who are taking advantage of a network effect to create a defensible competitive advantage.

When people talk about utilizing a SaaS (Software-as-a-Service) business model, they often refer to the revenue model (subscription) and delivery model (cloud vs. on-prem). But if you’re only thinking about these two aspects, you’re not building SaaS, you’re building SaaC – Software-as-a-Commodity.

Depending on the problem your product is meant to solve, a SaaS business model can put you in a better position to pull certain defensible differentiation levers and not others. But either way, those levers are not going to pull themselves…

I found myself referencing this 4-part series by Lincoln Murphy on the challenges of enterprise SaaS several times recently:

Part 1 – calls to question some of the value of a pure-play SaaS model in an enterprise market.

Part 2 – talks about some of the unique selling challenges in the space.

Part 3 – separates on-demand delivery mechanism (SaaS) from on-demand licensing model (Utility) and calls both to question in some settings.

Part 4 – Provides a shorter summary of Parts 1+3 and briefly touches on the “unnecessary” requirement of absorbing all support costs.

Addendum/fallback – clarifies a few key points around the distinction between hybrid SaaS and hybrid licensing and source-code escrow.

Though these posts are more than 7 years old by now, the content still holds true. The reason for that, and why I thought it’s worthwhile to mention it in this blog, is because of the core of Lincoln’s arguments there’s a powerful kernel of truth that’s beautifully captured in the title of this blog post (taken from one of the posts in his series): “Be a solution provider first, a software company second and a SaaS company third”.

Generalizing it just a bit it reads as follows: In the end of the day, we (the company) exist to solve a problem for our customers. The way we go about solving it from a functional perspective (being a software company) and from a business perspective (using a SaaS business model) are means to an end. Sometimes the means that we choose can get in the way of solving the problem for our customers, and then they need to change. Often times companies forget this basic truth and stick to their functional/business approach at all costs, finding themselves in a situation where they’re trying to jam a square peg into a round hole and setting themselves up for failure.